Cigna reiterate support for Express Scripts merger Despite Criticism from an activist Investor

Cigna's board said Icahn's letter "demonstrates an uninformed view of the current healthcare marketplace.

After the proposed merger between Cigna and Express Scripts was publicly criticized by activist investor Carl Icahn, the insurer (Cigna) replied less than 12 hours in a letter where they stressed their support for the deal.

The letter written last Tuesday from Cigna’s board of directors was the first time that the insurer had specifically addressed Icahn’s appeal to block the merger. While emphasizing the tremendous value of the deal for shareholders, the board took pointed jabs at Icahn, and labeled his opposition self-serving and added that his criticism “demonstrates an uninformed view of the current healthcare marketplace and Cigna’s strategy.”

In their letter, they stated that Mr. Icahn’s opposition was misguided and shortsighted. They added that the assertions in Mr. Icahn’s letter are value destructive and demonstrate a clear lack of understanding of the dynamics of the healthcare industry.

Icahn last Tuesday classified the $67 billion deal as a "huge bailout" for Express Scripts and predicted the acquisition would be "one of the worst blunders in corporate history."

But Cigna pushed back on some of Ichan's chief criticisms of the deal, including new regulatory pressure from the Trump administration that could reform the PBM rebate system, and mounting pressure from Amazon. Cigna noted that it has successfully navigated previous regulator pressures, including the Affordable Care Act.

Furthermore, the board said changes to the rebate structure would affect government plans, not the commercial side. Express Scripts has already said the company would be fine without rebates.The board also emphasized the new company would allow the company to "compete or partner with others in the market from a position of strength," adding to CEO David Cordani's comments on last week's earnings call that the insurer would not be opposed to working with Amazon.

The insurer mocked Icahn's suggestion that it could partner with Express Scripts while it develops its own PBM.

"The notion that we can negotiate a complex multiyear agreement with a third party that will allow us to deliver attractive PBM affordability to our clients and customers while the rest of the industry reformats itself is naïve at best," the board wrote. "We have firsthand knowledge as a PBM operator that these arrangements are complex and that it would be exceedingly difficult to draft a static contract that benefits Cigna in all scenarios in a changing environment."

The board reaffirmed its position that Cigna shareholders should vote for the deal on Aug. 24, a move that could keep Cigna from paying a $1.6 billion breakup fee. Under the terms of the agreement, Cigna would have to pay the termination fee if shareholders voted against the deal and the board changed its recommendation.